Jason Grumet, founder and president of BPC, is respected on both sides of the aisle for his innovative approach to improving government effectiveness. Grumet’s first book, City of Rivals: Restoring the Glorious Mess of American Democracy, was released in September 2014.

Olympia Snowe is a BPC senior fellow and co-chairs its Commission on Political Reform. With her election to the U.S. Senate in 1994, Snowe began an 18-year career in the Senate. She was the first woman in U.S. history to serve in both houses of a state legislature and both houses of Congress.

Henry Cisneros co-chairs BPC’s Housing Commission and BPC’s Immigration Task Force. In 1981, Cisneros became the first Hispanic-American mayor of a major U.S. city, San Antonio, Texas. In 1992, President Clinton appointed Cisneros to be Secretary of the U.S. Department of Housing and Urban Development.

G. William Hoagland is a senior vice president at BPC. Hoagland has completed 33 years of federal government service. From 1982 until 2003, Hoagland was a staff member of the Senate Budget Committee, serving as that committee’s staff director from 1986 to 2003.

Condoleezza Rice co-chairs BPC’s Immigration Task Force. She is currently a professor of political economy in the Stanford Graduate School of Business and a professor of political science at Stanford University. From January 2005-2009, Rice served as the 66th Secretary of State.

Former Senator Byron L. Dorgan is a BPC Senior Fellow and co-chairs BPC’s Energy Project. He served as a congressman and senator for North Dakota for 30 years before retiring from the U.S. Senate in 2011. He served in the Senate leadership for 16 years.

Thomas H. Kean is former governor of New Jersey (1982 to 1990). As governor, he served on the President’s Education Policy Advisory Committee and as chair of the Education Commission of the States and the National Governor’s Association Task Force on Teaching.

Dan Glickman is a BPC senior fellow, and he co-chairs its Commission on Political Reform, Democracy Project, Prevention Initiative, and Task Force on Defense Budget and Strategy. Glickman served as the U.S. secretary of agriculture from March 1995 until January 2001.

Pete V. Domenici is a BPC senior fellow, and he co-chaired its Debt Reduction Task Force, Health Care Cost Containment Initiative, and Task Force on Defense Budget and Strategy. Domenici served as a senator from New Mexico longer than any other person.

Doctor and Senator Bill Frist is a BPC senior fellow and he co-chairs its Health Project. He is both a nationally recognized heart and lung transplant surgeon and former U.S. Senate Majority Leader. Frist represented Tennessee in the U.S. Senate for 12 years.

What We’re Reading: Financial Regulatory Reform, January 16

Wednesday, January 16, 2013

BPC’s Financial Regulatory Reform Initiative regularly highlights news articles, papers, and other important work which illuminates current and new thinking within financial regulation. We circulate these articles to provide a full view of cutting edge ideas, reactions and positions. The views expressed in these articles do not necessarily represent the views of the initiative, its co-chairs, task force members, or the Bipartisan Policy Center.

“Without regard to the underlying substantive differences among the Agencies, we believe it is very important that the Agencies act in a coordinated manner to adopt final Volcker Rule regulations that are substantively identical and issued at the same time. If the Agencies’ rulemaking efforts are not coordinated, market participants could be faced with different and potentially conflicting requirements that are subject to inconsistent interpretation by different Agencies. This would unnecessarily increase the complexity of an already complex regulatory framework and would result in additional uncertainty for market participants, their customers, and U.S. financial markets overall.” Read the full letter here.

“This paper focuses on the application of ‘top-down’ resolution strategies that involve a single resolution authority applying its powers to the top of a financial group, that is, at the parent company level. The paper discusses how such a top-down strategy could be implemented for a U.S. or a U.K. financial group in a cross-border context.” Read the full paper here.

“The importance of understanding the costs of various regulatory measures is self-evident. As I will discuss shortly, industrial organization (IO) can help determine the circumstances in which firm size or industry concentration is associated with economies of scope and scale that carry social benefits. Any reduction in such benefits would be an unintended cost of financial stability policies. Conversely, if firm size or industry concentration is found to stem only from market power or from funding advantages associated with too-big-to-fail policies or perceptions, then some policies aimed at diminishing systemic risk would have the added benefit of mitigating market failures.

Less obvious, perhaps, is the potential for IO research to inform financial stability regulation by illuminating industry dynamics that may not be intuitively apparent. For example, unlike firms in most other industries, large financial institutions transact with one another on a nearly continuous basis and regularly maintain contractual relationships carrying substantial future obligations. The daily operations of most firms in the financial industry depend to a much greater extent on the conditions of their competitors than do such operations of firms in other industries. By extending work on patterns of cooperation and competition among firms in other industries to the financial sector, IO might help shape regulatory structures that can reduce the potential for contagion during periods of financial stress.” Read full the speech here.

“During the years preceding the mortgage crisis, too many mortgages were made to consumers without regard to the consumer’s ability to repay the loans. Loose underwriting practices by some creditors—including failure to verify the consumer’s income or debts and qualifying consumers for mortgages based on “teaser” interest rates that would cause monthly payments to jump to unaffordable levels after the first few years—contributed to a mortgage crisis that led to the nation’s most serious recession since the Great Depression.

In response to this crisis, in 2008 the Federal Reserve Board (Board) adopted a rule under the Truth in Lending Act which prohibits creditors from making “higher-price mortgage loans” without assessing consumers’ ability to repay the loans. Under the Board’s rule, a creditor is presumed to have complied with the ability-to-repay requirements if the creditor follows certain specified underwriting practices. This rule has been in effect since October 2009. In the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress required that for residential mortgages, creditors must make a reasonable and good faith determination based on verified and documented information that the consumer has a reasonable ability to repay the loan according to its terms. Congress also established a presumption of compliance for a certain category of mortgages, called “qualified mortgages.” These provisions are similar, but not identical to, the Board’s 2008 rule and cover the entire mortgage market rather than simply higher-priced mortgages. The Board proposed a rule to implement the new statutory requirements before authority passed to the Bureau to finalize the rule.” Read the full rule here.

“This paper describes the credit reporting infrastructure at the three largest nationwide consumer reporting agencies (NCRAs) – Equifax Information Services LLC (Equifax), TransUnion LLC (TransUnion), and Experian Information Solutions Inc. (Experian) – with a special focus on the infrastructure and processes currently used by the NCRAs to collect, compile, and report information about consumers in the form of credit reports.” Read the full report here.

“Under section 939F of Title IX, Subtitle C (“section 939F”), the U.S. Securities and Exchange Commission (“Commission”) must submit to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives, not later than 24 months after the date of enactment of the Dodd-Frank Act, a report containing: (1) the findings of a study on matters related to assigning credit ratings for structured finance products; and (2) any recommendations for regulatory or statutory changes that the Commission determines should be made to implement the findings of the study.” Read the full study here.

“The Commissioners asked whether money market funds that break the buck outside a period of financial distress would cause a systemic problem. RSFI documents that a number of funds received or requested sponsor support during non-crisis times, an indication that defaults and rating downgrades have led to significant valuation losses for individual funds. With the exception of The Reserve Primary Fund, however, these funds’ distress did not trigger industry wide redemptions. This finding suggests that idiosyncratic portfolio losses may not cause abnormally large redemptions in other money market funds. However, data is limited even on these and other potential events because the instances where sponsor support was provided generally were not publically disclosed to money market fund investors and thus, it is difficult to determine the exact number of funds that might have been affected or the consequences if investors had been aware of sponsor support.” Read the full staff paper here.

We analyze the leading reform proposals to address the structural vulnerabilities of money market mutual funds (MMFs). We take the main goal of MMF reform to be safeguarding financial stability. Specifically, MMF reforms should reduce the ex ante incentives for MMFs to take excessive risks and increase the ex post resilience of MMFs to system-wide runs. We argue that requiring MMFs to have capital buffers best accomplishes these goals. Capital provides MMFs with loss absorption capacity, lowering the probability that a MMF suffers losses large enough to trigger a run, and reduces ex ante incentives to take excessive risks. Read the full paper here.